India has emerged as the fastest growing big economy.
China is witnessing slowdown in economy.
Trade policy of Donald Trump may severely impact China.
India and China are not only neighbours but also rivals. They jostle with one another along the borders in three sectors, over support to Pakistan and terror outfits, in taking global leadership roles on critical issues, over NSG membership, as military powers, as regional leaders, over Nepal and of course, Doklam plateau of Bhutan.
India and China together are home to little less than 37 per cent population of the world and thus are centres of future. They are the biggest emerging powers of the world.
China has achieved more progress and prosperity over the last two-three decades by increasing public investment in its manufacturing industries. India is in catching up game right now, but there are indications that the tide is turning against China and in favour of India.
CHINA’S GROWTH STORY NEARING END
For better part of the last three decades, China has grown at the fastest rate among big economies. India’s growth rates were dwarfed by the Chinese. The economy of China is about five times bigger than that of India.
China achieved this growth riding on the back of massive investment in urban based manufacturing and infrastructure. The manufacturing infrastructure of China has now reached a point of diminishing returns. There are several reports about crisis in manufacturing sector in China.
On the other hand, India has picked up in the last few years. Its average growth rate of about 5 per cent in the last decade was low in terms of number but solid on fundamentals. Since 2015, India has emerged as the fastest growing nation among the big economies.
There are several estimates suggesting that in 2020s, India will emerge ahead of China on several counts in economy. The recent reforms by the Narendra Modi government are only expected to give boost to Indian economy whose fundamentals are more balanced than those of China. A democratic India has more scope for fast and balanced growth than communist China.
Economists say that debt is essential for economic growth of a country. But, in China’s case, debt is fast turning into a liability in literal terms. Very high debt-GDP ratio has been found to slow down the growth rates.
In 2015, China’s total debt stood at 282 per cent of its GDP. China is practically awash in debt. Though, the debt-GDP ratio for the US was 331 per cent. But, then the two economies have certain basic differences in the nature.
India’s total debt in 2015 was 135 per cent of the GDP. The fact that India’s debt-GDP ratio is around only half of China’s and that it is maintaining its level over the last decade is a strong indication that the faster growth rates are to stay here. India is likely to witness many years of fast growth rate which does not seem to be the case with China.
While China and the US have looked as adversaries on aspects of geostrategy, Chinese economy is modeled in such a way that makes it overtly dependent on the policy mood of the White House. And, the White House has a new occupant, who blames China and Mexico for slowdown in the US economy.
Incidentally, US President Donald Trump has expressed on more than one occasion that India can be an economic and strategic partner of America.
Chinese economy is export driven. Its manufacturing units are designed to produce goods for export. This feature alone has given China a huge advantage over Indian economy but, it also makes Beijing vulnerable. Any change in the trade dynamics of the world will severely impact Chinese economy.
According to one estimate, export contributes about 21 per cent of China’s GDP. Of all the exports about 18 per cent goes to the US, which translates into about 4 per cent of China’s GDP. Donald Trump may change the way the business has been going on between the US and China.
Trump has indicated that his administration will not hesitate from creating walls to block or put a curb on the entry of Chinese goods into the US. This is in sync with Trump’s America First policy. Trump wants to give a boost to America’s slowing manufacturing industry to generate more local jobs. If Trump succeeds, China is bound to fail.
On the other hand, India’s manufacturing is not export-oriented. Reforms in India have focused on increasing domestic competition. India’s services sector is export oriented and is bound to grow further. The US is likely to favour India’s services sector, which provides jobs to local youth there more than the Chinese manufacturers.
Donald Trump’s policies could be a game-changer for both India and China.